Commercial banks ICICI, Andhra, and Canara made separate takeover proposals of United Western Bank. The action comes at a time of rising interest in Indian microfinance from commercial banks. According to Indian news service Moneycontrol, “ICICI Bank had been planning a major foray into agricultural and rural lending, [and] the branch network of UWB will come in handy in achieving that target in this sector.” United Western has experienced severe stock price volatility following a Reserve Bank of India moratorium issued September 2, 2006. As a result, the bidding banks have not yet released valuation details. United Western has not responded to the three proposals.
United Western Bank (UWB) began in 1936 and has 230 branches throughout southern and western India. Of note is its unique Special Agriculture Branch, which services rural customers with small loans. The bank reported a loss of $21.2 million this year and return on assets of -1.5% as of March 31, 2006. Its 35,858,546 shares were valued at $0.21 on September 4, 2006, implying a market value of $7.5 million. A week earlier, the share price was approximately $0.50, thus giving bidding banks the chance to buy UWB at a historical discount.
Andhra Bank was founded in 1923 and presently has 1179 branches. It posted net income as of March 31, 2006 of $105 million and return on assets of 1.38%. The Indian government owns 51% of the bank’s shares. Canara Bank was established in 1910 and operates 2508 branches. Its net income was $291 million as of March 31, 2006, and it had a return on assets of 1.01%. 73% of the bank’s shares are owned by Indian government. Andhra and Canara were nationalized in the 1960s until the mid-1990s when competition forced the government to divest portions of its bank holdings.
ICICI Bank was established in 1994 and grew to become the second largest bank in India based on assets. It had net income at year end 2005 of approximately $500 million, and operates 614 branches. Through about 100 rural partnerships, its portfolio of microfinance investments stood at $227 million and 1.2 million clients at year end 2005. A prominent partner of the bank is Spandana. The Andhra-Pradesh-based microfinance institution disbursed loans of $3.4 million in 2004 at an effective rate of 30%, of which 9.25% went to ICICI. In addition, in November 2005, ICICI tied up with the Grameen Foundation USA to create microfinance lender Grameen Capital India. ICICI has been micro lending since 2001.
MicroCapital reported on September 1, 2006 about the increasing presence of commercial Indian banks in the microlending sector.
Additional Resources:
1) Moneycontrol India News: “ICICI Proposes to Takeover UWB”
2) The Hindu Business Line: “Canara Bank files EoI for acquiring United Western Bank”
3) Economic Times: “UWB shares plunge 77% as bank go under moratorium”
4) United Western Bank: Financial Results
5) Andhra Bank: Financial Performance (PDF)
6) ICICI Bank: Overview
7) UN Capital Development Fund: Newsletter featuring ICICI
8) Consultative Group to Assist the Poor: Bank Profiles
9) MicroCapital Blog: Commercial Banks in India Delve into Microfinance Investments
